What Is Schedule A Tax Form? And How Does It Relate to Itemized Deductions?
For individual taxpayers, Schedule A is used in conjunction with Form 1040 to report itemized deductions. If you choose to claim itemized deductions instead of the standard deduction, you would use Schedule A to list your deductions. Your itemized total is then subtracted from your taxable income.
By claiming itemized deductions in 2017, you might be able to save 10 cents to 39.6 cents for every dollar you decrease your taxable income over the decrease you’d get from the standard deduction. The amount you save depends on your tax bracket.
For instance, if you’re a single taxpayer in the 25% bracket and you have $10,000 of deductible Schedule A expenses, your 2017 tax savings are $912 ($10,000 – $6,350 × 25%). Itemized deductions are also limited for higher income taxpayers (generally, those with adjusted gross income (AGI) over $261,500, or $313,800 for joint filers.
For tax years beginning after December 31, 2017, many of the itemized deductions discussed below are reduced or eliminated. This article will first review the itemized deductions available for tax year 2017, then discuss the itemized deductions that were changed, limited, or eliminated as part of the Tax Cuts and Jobs Act (TJCA) tax reform.
What are the 2017 Itemized Deductions?
Medical and dental expenses
Medical expenses include qualified expenses you pay out-of-pocket for medical care, such as doctor’s visits and prescription drugs. However, for medical expenses to be deductible for 2017, they must:
- Total more than 7.5% of your AGI (only the amount that exceeds 7.5% is deductible)
- Not be reimbursed in any manner — including by an insurance company
State and local income taxes or general sales taxes
Income taxes you pay to state and local governments are deductible if you itemize deductions. If you live in a state that doesn’t have an income tax, or you buy certain “big ticket” items, such as an automobile or boat, it may be worthwhile to deduct state and local general sales tax in lieu of income tax.
Real estate and personal property taxes
Under certain conditions, you can deduct the state, local, and foreign real estate taxes you pay on your:
- Other property
If you want to deduct the tax, it must be:
- Levied for the general public welfare
- Based on the assessed value of the property
- A uniform tax against all property in the jurisdiction of the taxing authority
You can also deduct the tax you pay on personal property, like your car. To deduct the tax, it must be:
- Based upon the value of the item
- Imposed annually
- Imposed on personal property located in the United States
Mortgage interest paid
If you itemize deductions, you can deduct qualified mortgage interest on your main home and a second home. You must be legally liable for repayment of the loan to deduct the loan interest.
You can deduct interest:
- On mortgage loans up to $1 million in total that you pay to the bank or mortgage company on your main home and a second home.
- On a home equity loan or line of credit up to $100,000.
- On a mortgage up to $1 million you pay to an individual, like the home’s seller, if they financed the sale. As long as the loan is secured by your main home or a second home, you can deduct the interest.
Deductible investment interest
When you borrow money to invest, you can deduct the interest you pay on the loan as an itemized deduction on Schedule A. However, the investment interest you can deduct can’t be more than the amount of investment income you report.
You can deduct money and non-cash donations you make to qualified organizations, up to 50% of your AGI. Money donations include:
- Credit card
- Payroll deduction
- Automatic withdrawals from your bank account
Non-cash donations are some types of goods, like:
- Household items
You can also deduct mileage you drive if it’s directly related to charitable work.
Casualty and theft losses
Subject to certain limitations, you can deduct losses from casualties, such as a fire or tornado, and thefts. The deduction is subject to limitations. Special rules apply to certain hurricane losses.
Miscellaneous itemized deductions
These fall into two categories: those that are subject to a 2% limit, and those that are not subject to the limit.
Deductions subject to the 2% limit
Some miscellaneous itemized deductions are subject to a 2% of AGI limit. These include:
- Unreimbursed employee business expenses
- Hobby losses
- Tax preparation fees
These expenses must add up to more than 2% of your AGI before you can deduct them.
Other miscellaneous expenses
Some amounts you enter on Schedule A don’t fall under any categories listed above. These are listed as miscellaneous expenses not subject to the 2% limit. An example of this type of expense would be gambling losses. Your losses are limited to your gambling winnings.
Ex: If your winnings totaled $100, you can deduct up to $100 in losses.
The TCJA makes several changes to itemized deductions for tax years 2018-2025. Note, overall, the itemized deduction phaseout (reduction) for higher income taxpayers is repealed by the TCJA
Medical and dental expenses
The TCJA reduced the 10% of AGI “floor” to 7.5%, but for 2017 and 2018 only. Starting in 2019, these expenses will be limited to amounts over 10% of AGI.
State and Local Taxes
TCJA limits the itemized deduction for all state and local taxes to $10,000. This will include your state and local income or sales, real estate, and personal property taxes. You can combine all of these taxes to claim a single deduction of up to $10,000.
Mortgage and Home Equity Loan Interest
Tax reform affects mortgage interest deduction amounts: For mortgages taken out after December 15, 2017, only interest on the first $750,000 of mortgage debt is deductible. For older mortgages, the $1 million limitation still applies.
Additionally, interest on home equity loans, used for purposes other than substantial improvements to your home, will no longer be deductible.
Beginning in 2018, you can claim a deduction for qualified charitable contributions, up to 60% of your AGI; up from 50% in 2017.
Casualty and theft losses
Starting in 2018, the deduction for personal casualty and theft losses is limited to losses in federally declared disaster areas. Note: business casualty and theft losses claimed on business forms and schedules, such as Schedule C, are still allowed.
Eliminated Itemized Deductions
- All miscellaneous itemized deductions subject to the 2% of AGI limit.
- The deduction for foreign real property taxes.
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